Thursday, December 30, 2010

What's the rational math for cost-benefit decisions?

Every explanation I read about human irrationality when it comes to wagers seems to treat $6 like the 6 on a die. As if money was for spending right away or for stuffing mattresses--as if interest didn't exist and rates didn't prevail, and as if there were no prospective element of the value of a win or the harm of any given loss. This is not the rationality they teach and recommend in business school classes, I'll wager; yet I wonder to what extent they've developed a math for it, whether that math has pithy principles or lessons by analogy to the bell curve or binomial distribution; and whether it might have something to teach or learn from biological competition, in which the currency likewise is non-inert and prospectively oriented.